Statement in response calls claims in lawsuit 'baseless allegations'

Oct. 4, 2013

Jacqueline Dowdy Current CEO of JQH Hotels

Written by

John Q. Hammons Developer died in May 2013

The John Q. Hammons Trust has lost hundreds of millions of dollars in value over the past several years and has failed to make payments on a $275 million loan, a new lawsuit alleges.

In response, a statement from a Hammons company representative called the suit’s claims “baseless allegations.”

The suit is the second accusing the company and its chief executive officer of misrepresenting the trust’s actual worth.

SFI Belmont made the loan to JQH Hotels through Atrium Lendco, a corporation controlled by investor Jonathan Eilian, in 2005. In August, it filed suit in a Chicago-area court, saying the Trust has failed to make payments and overestimated its net worth. Eilian is already involved in other litigation against JQH.

Under the loan, JQH was required to maintain a minimum net worth of $250 million. Each year, John Q. Hammons provided statements of the trust’s net worth, based on fair market values.

According to the lawsuit, on Oct. 15, 2010, Jacqueline Dowdy, the current CEO of JQH Hotels, told Atrium that John Q. Hammons himself was no longer able to manage his own affairs, and Dowdy was named a successor trustee of the JQH Trust.

Then, in March 2011, Dowdy sent Atrium a statement of the Trust’s net worth for 2010. The statement was prepared by the accounting firm BKD, but using figures supplied by the Trust.

According to the lawsuit, SFI Belmont noted “several concerns” with the statement.

“Second, BKD changed the content of the financial statement from previous statements and failed to state that the 2010 Statement was intended to present the assets at estimated current values and liabilities at estimated current amounts.”

The lawsuit also says the statement showed that the value of the Trust’s assets had changed little over the years, despite an ongoing recession.

“As SFI noted, one investment in a casino had been listed at exactly the same value for four years.

Another investment in a hotel development was listed at an equity value of $37 million, even though it was known to be in foreclosure,” the lawsuit says.

(Page 2 of 2)

“One property had been valued by an outside appraiser at less than half of the value shown on the 2010 statement.

“And the value of land holdings in the statements had varied little over the last few years, even though prices in the market for undeveloped land had plummeted.”

SFI Belmont had an independent appraisal conducted and found that the Trust had appraisals of hotels and other assets that showed lower values than what the Trust ultimately reported, according to the lawsuit.

In Sept. 2011 an independent auditor recalculated the net worth at $211 million. Because the amount was now below the minimum net worth required by the loan, SFI Belmont demanded immediate “prepayment of principal” of $49 million under the loan agreement.

According to the lawsuit, Dowdy and the Trust have failed to make these repayments. The lawsuit asks the court to force Dowdy and the Trust to pay back the loan with interest.

Sheri Smith, president of Publicis PR-Dallas used by John Q. Hammons Hotels to answer media questions, said the company not yet filed a formal response to the lawsuit, but did provide a statement.

“The Company has received a copy of the complaint filed in Cook County, Ill., and has engaged counsel to aggressively defend against the baseless allegations brought by SFI Belmont, LLC.

The lawsuit will have no impact on the operations of the Company,” the statement says.

Although the company’s statement to the News-Leader was short, a September court filing sheds some light on its position.

After SFI Belmont filed a motion in September to commence discovery, JQH Hotels filed a “response in opposition.”

“Significantly, SFI has not alleged that the Defendants failed to make any regularly scheduled payment on the subject loan, nor has it alleged that the Defendants have insufficient assets to repay the loan,” the response says.

The response says the outstanding balance of the loan is about $140 million.

Several other lawsuits have been filed against Hammons entities in the past, including three civil lawsuits regarding the financial standing of Hammons’ business and the appropriateness of its leadership.

One, filed in Delaware last year, alleges that Dowdy is not qualified for the top job, nor was she properly approved by Atrium TRS, a company with partial ownership of Hammons’ company.

A second case, also out of Delaware, is asking a judge to step in after a disagreement between JD Holdings, Inc. and Hammons’ company over purchasing rights to planned hotels, including the now-defunct hotel planned next to the Expo Center in Springfield and another in Osage Beach.

Another, filed in New York in 2012, alleges that financial updates from Hammons’ company were falsely reported, and that the company is, in fact, in worse financial shape than what the reports showed.

If that is the case, the company holding a loan for a Hammons project has asked the judge to be allowed to recoup the full amount of the loan immediately.